Saturday, July 07, 2012

Eurozone policymakers have produced an endless stream of summits with an endless stream of announcements, that generally make folks happy for a week or so. The latest summit that produced "Euro-wide" bank supervision/bailouts is no exception, as this graph from Soberlook demonstrates:

Spanish interest rates fell and stayed down for around 4 days before rising above pre-summit values (I know the graph is of the spread, but the same is true for the Spanish rate). The Euro appreciated and stayed that way for around 4 days before falling below pre-summit values.

I now believe there is only one way to save the Euro: Weekly Summits!!

1. I am agnostic about fracking. Seems complicated. But here we have the opinions of Natalie Merchant and other "artists," whose only qualifications for participating in the fracking debate is an incapacity for self-doubt. Brought to you as always by the NYTimes, which is careful to provide the full range of views from the mildly wacky left to the completely insane left.

3. Not surprisingly, "green jobs" are a significant net cost. Far from creation, these kinds of "investments" are actually job prevention. How are you going to save the environment if you always go 'round breaking windows? The Dub-MOE explains about broken windows.
BTW: Title with apologies to Hugh Brannum.

Friday, July 06, 2012

Wow. 80,000 net new jobs in June. The last three months (after revisions) now come out to 68,000 - 77,000 - 80,000 and that "trend" is not going to help anyone anytime soon. As Mungo noted, job growth needs to almost triple for unemployment to significantly fall.

People, an infrastructure bank is not going to fix this. QE III is not going to fix this. Retroactive NGDP level targeting is not going to fix this. Tax increases are not going to fix this.

This morning Twitter is again ablaze with calls for the Fed to "finally" act.

Remember this is a Fed that has already kept its policy rate at nearly zero for multiple years and promised to do so until late 2014. A Fed that has vastly expanded its balance sheet pumping trillions of new reserves into the system. A Fed that has already engaged in a couple rounds of quantitative easing.

I believe that at the core of the calls for the Fed to act is a desire for higher inflation. Sure, that's fine with me, lets give it a try. But I don't think running inflation at say 4% is going to be a magic bullet.

Are there still nominal contracts that haven't yet been expired, adjusted or abrogated 4 years into this mess?

Can inflation double and nominal interest rates stick at their current rates? Will the Fisher effect really be neutered?

Even if real rates become a bit negative, will firms really start to make massive investments in projects they would expect to be unprofitable when discounted at zero percent or one percent?

When people call for the Fed to finally act or accuse Bernanke of dereliction of duty ask them this question: What can the Fed do that will fix this mess, how exactly would the policy action be implemented and by what mechanism would it effect the cure?

And if their answer is that merely adopting a new policy target will cause an expectational change that fixes the mess?

The increase in jobs, reported on Friday by the Labor Department, is not enough to significantly reduce the backlog of unemployed workers.

Um...yes. That's something of an understatement, since the cut-off for producing new jobs fast enough to reduce unemployment is 175,000 per month, and more like 225,000 per month if you take into account labor force participation effects. (What THAT means is that if we start creating jobs at 250k per month, people will reenter the labor force, and the unemployment rate may even go UP slightly).

David Leonhardt, playing the "Defend Obama at all costs!" game, said in May that 150,000 was the cutoff. And he also bent over backwards to say that things were getting better, when there is exactly zero evidence that that is true.

Look, folks, until someone makes some effort to (a) reduce military spending, (b) solve the growth of entitlement spending, and (c) turn off the spigot flooding businesses with new and unpredictable regulatory burdens, there will be no increase in jobs created. We are doing the deficit-spend thing about as much as is possible, and the Fed keeps firing its own bullet, right into the ocean. Ploop! Nada.

If this helps Romney, it's not because he has any kind of plan, or deserves to be helped. Romney has given no specifics of what he would do, or even how he thinks of what he might do.

Romney is running like an incumbent, in fact. Even though he has no indication of being able to address the three problems above.
And the reason is, just like David Leonhardt said in May, that bad job growth numbers mean Obama loses. Not that Romney "wins," but that Obama loses.

I never thought Obama and co. would be this inept and pigheaded, but they are. They absolutely refuse to move from their position that the solution to the economic malaise is to pay more money to government employees and to fund their pensions.

"The private sector is doing fine," indeed. That was NOT a gaffe. It was a statement of core beliefs.
Some people have said that Obama does not trust markets. That's actually not true. He has too MUCH faith in markets. He thinks he can tax, regulate, and abuse people, and they will still doggedly go to work and try to make that cheddar. That's not actually working out very well for him.

Wednesday, July 04, 2012

As you all know, "Uncle Drew" was Kyrie. Nicely done. The video of the transformation, which you likely have also seen, is cute. On the off chance you haven't seen it...
Kyrie is an extremely charismatic young man. I saw him on campus a few times, but of course he didn't stop and talk.

Tuesday, July 03, 2012

Some quick marital advice: I will celebrate 26 years of being with the LMM, on Thursday! Hooray! She is somewhat less excited.

It may be because she just got a new iPhone. And then she could not get the voice mail set up on her iPhone. She was more than a bit miffed about this.

So I set it up, with the following message, using my voice: "This is [LMM's] phone. She is digitally challenged, and so could not get her own voice on this greeting. But if you leave a message, I promise that she will accidentally delete it and then yell at me."

For some reason, the LMM was MUCH more than miffed about this. Now she is hearing my actual voice say, "It was just a little joke, sweetie! Sweetie?"

2. The US should bury its power lines. Because Germany does. (David Frum is an idiot, in other words. Germany has a population density of 600 per square mile. The US has a population density of 83 per square mile. Even the state of Virginia, where Mr. Frum is whining about missing his AC, has only a pop density of 196 per square mile. It's just not economical, not even close to it...)

So, I got myself into something difficult. Being a professor, I do what many of us do, and assume that if students don't "get it," it's their fault for not being smart enough. (I'm not as bad about this as Ricardo G, "El Certificador!" He actually believes he stands between idiots and their diplomas, which would be meaningless without El Cert's watchful eye. But I know I do sometimes blame the consumers when in fact the product is bad.)

But, in this case, I have agreed to give two four-hour* "classes" to a summer church camp. The kids are 11-17 years old, and they come from (as the director described it) "urban backgrounds." The time I have is 8:30 to noon, on Monday July 9 and Monday July 16.

My job? To teach about (1) the American Constitution, (2) the importance of property and exchange, and (3) entrepreneurship.

You see the problem? This is what people like me always whine about. "No one is teaching our kids today about (1) TAC, (2) TIOP&E, or (3) Entrepreneurship. THAT's the problem." So, here's my chance.

What you do? I need advice. Activities. This obviously CANNOT be a lecture, or anything like a lecture. 11-17, summer, in a church basement, 8:30 am to noon. What can I do that will help the kids think about the Constitution, property rights, and entrepreneurship?

Sunday, July 01, 2012

"If Bernanke ended the recession tomorrow, it would be an admission that he could have ended it two years ago. So he won't."

Let's break it down, KPC style:

1. Matt, the recession is over. The NBER dates the business cycle and puts the end of the recession as June 2009! Matt is not the only one doing this, but it is misleading and quite incorrect to do so.

2. For argument's sake, let's replace "ended the recession" with "accelerated growth". Then the conditional statement would be true. If BB could instantly accelerate growth tomorrow, he also could have done it two years ago.

3. Consider all the things BB has done to try and accelerate growth. Short term rates at zero. Promising to keep short term rates at zero for years (until late 2014). Pumping reserves into the system at an historically unprecedented rate. Two rounds of quantitative easing.

4. Matt doesn't say how BB could accelerate growth tomorrow (he only had 140 characters). I assume Matt means that BB could make a policy announcement that would instantly change everything. Something like a retroactive commitment to an nominal GDP path or a retroactive commitment to a price level path. If that's not what Matt means, then I apologize and withdraw what follows below.

5. The key for policies like that to work, even in theory, is that BB must, in Paul Krugman's words, "credibly promise to be irresponsible" and I see no way for the Fed to do so in general, let alone in this political environment. It's a lot harder than it might seem (to get an idea of how hard, check out Svensson's "foolproof way" paper).

6. I too am unhappy with the current state of the US economy. Growth is too slow and unemployment is too high. But it simply is not in the power of any single person in the world to change that in a day. Implying that BB is deliberately keeping the US economy down does not serve any constructive purpose.